Investment

Consider the multifactor model APT with

three factors (GDP, inflation and interest
rate). Portfolio A has a beta of 0.55 on
factor 1 and a beta of 1.13 on factor 2 and
a beta of 0.8 on factor 3. The risk
premiums on the factor 1, 2 and 3
portfolios are 2%, 4% and 9%,
respectively. The risk-free rate of return is
7%. Calculate the expected return on
portfolio A.

Assume XYZ Company just paid
dividends $ 2 per share. If the growth rate
is 5% indefinitely and the market interest
rate is 11%. what should be the price of
the stock today??
Would you buy this companys stock if it is
now selling at $39?


What is the value of a 9% coupon bond with a
par value of $10,000 that matures in 10 years
compounded semi-annually if you require a
7% return ?


What would be the value of the bond in
problem 4 if you required an 11% rate of
return ?
Problem 5
What would be the value of the bond in
problem 1 if you required a 9% rate of return?